Woodhouse v Francis [No 2] - [2022] WASC 318

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   WOODHOUSE -v- FRANCIS [No 2] [2022] WASC 318
CORAM:   HILL J
HEARD:   6 OCTOBER 2020
DELIVERED          :   19 SEPTEMBER 2022
FILE NO/S:   COR 114 of 2019
MATTER:   IN THE MATTER OF GGA LIFESTYLE PTY LTD (IN LIQ) & DOUBLEUP HOLDINGS PTY LTD (IN LIQ)
BETWEEN:   DANIEL HILLSTON WOODHOUSE
First Plaintiff
IAN CHARLES FRANCIS
Second Plaintiff
AND
GLEN FRANCIS
First Defendant
TIMOTHY DAY
Second Defendant

Catchwords:

Corporations law – Application by liquidators for directions under s 90-15 of the Insolvency Practice Schedule – Whether indemnity secured by equitable lien can be exercised by liquidators against partnership assets – Priority of distribution of partnership assets where both partners are companies in liquidation – Whether s 561 of the Corporations Act 2001 (Cth) applies in the winding up of the partnership – Whether priority regime prescribed by s 561 of the Corporations Act applies to the payment of debts of the partnership

Legislation:

Bankruptcy Act 1966 (Cth), s 110
Corporations Act 2001 (Cth), s 556, s 561
Insolvency Practice Schedule 2016 (Corporations) (Cth), s 90-15, s 90-20
Partnership Act 1895 (WA), s 50, s 57

Result:

Directions given

Category: A

Representation:

Counsel:

First Plaintiff	:	C Pearce
Second Plaintiff	:	C Pearce
First Defendant	:	No appearance
Second Defendant	:	No appearance

Solicitors:

First Plaintiff	:	Blackwall Legal LLP
Second Plaintiff	:	Blackwall Legal LLP
First Defendant	:	Willliams & Hughes
Second Defendant	:	Williams & Hughes

Case(s) referred to in decision(s):

Anmi Pty Ltd v Williams [1981] 2 NSWLR 138
Carter Holt Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20; (2019) 268 CLR 524
Commissioner of State Revenue v Rojoda Pty Ltd [2020] HCA 7; (2020) 268 CLR 281
Hendry v The Perpetual Executors and Trustees Association of Australia Ltd (1961) 106 CLR 256
HN QCV Bottle Tree Village Pty Ltd v QCV Bottle Tree Village Pty Ltd [2018] NSWSC 1807
In re Rudd & Son Ltd [1984] 1 Ch 237
Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil and Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; (2018) 260 FCR 310
Michell, In the matter of Petromech Pty Ltd (in liq) [2021] FCA 1378
Re Amerind Pty Ltd (recs and mgrs apptd) (in liq) [2017] VSC 127
Re Ansett Australia Ltd (No 3) [2002] FCA 90; (2002) 115 FCR 409
Re Broens Pty Ltd (in liq) [2018] NSWSC 1747
Re GGA Lifestyle Pty Ltd (admins apptd); Ex parte Woodhouse [2019] WASC 167
Re Lewis (in the matter of Concrete Supply Pty Ltd) [2020] FCA 841; (2020) ACSR 459
Re O'Keeffe Heneghan Pty Ltd (in liq) [2018] NSWSC 1885
Re Universal Distributing Co Ltd (in Liq) [1933] HCA 2; (1933) 48 CLR 171
Re Victoria Station Corporations Pty Ltd (admins apptd) [2018] VSC 163; (2018) 56 VR 26
Staples v Milner as Trustee of Property of Stapes, Baker, Firth & Campbell (1998) 83 FCR 203
Woods &

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2022] WASC 318
Decision Date

CaseChat Overview and Summary

This case involves the plaintiffs, Woodhouse, seeking directions from the court regarding the application of a priority regime to partnership assets in the context of the winding up of the defendant companies. The matter was heard in the Federal Circuit Court of Australia. The core legal issue was whether the priorities regime prescribed in section 561 of the relevant Act applied to partnership assets when one or more of the partners is a corporation. The plaintiffs argued that the nature of a partner’s interest in partnership assets is analogous to a trustee's interest in trust property, thus making the assets available to creditors of each company. The defendants argued that section 556 of the Act did not apply to the winding up and sought orders to this effect. The court had to decide if the priority regime should apply, considering the High Court’s recent decisions and the position of FEG, which did not file submissions but indicated a stance in correspondence.

The court considered the arguments presented and the analogies drawn between partners' interests and trust property. The plaintiffs' reliance on the case of Re Victoria Station Corporations Pty Ltd was noted, where the court made directions in the absence of interested parties. The court also took into account the High Court decisions in Carter Holt Woodproducts Australia Pty Ltd v The Commonwealth and Commissioner of State Revenue v Rojoda Pty Ltd, which were seen as addressing similar issues. The court found that the question of which priority regime should apply was not settled, and the recent High Court decisions did not provide a definitive answer. The court ultimately concluded that the nature of the partners' interest and the analogies to trusteeship warranted a finding that the partnership assets were available to the creditors of each company.

In light of the arguments and the unsettled nature of the law, the court granted the directions sought by the plaintiffs, allowing the partnership assets to be considered in the winding up of the companies. The court emphasised that the priority regime in question remained an open issue but found that the assets should be treated as available to creditors under the circumstances presented. The court's decision provided clarity on the application of the priority regime in this specific context, pending further legal determination.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

The plaintiffs submit that even though the hearing was heard as an ex parte application, it was appropriate for the court to make the directions sought. The plaintiffs have served all parties who have a material interest in the issues for determination and those parties have elected not to appear at the hearing. The plaintiffs say that this is consistent with the approach adopted in the cases that have previously considered the issue of which priorities regime should apply. Counsel for the plaintiff drew my attention to the decision of Robson J in Re Victoria Station Corporations Pty Ltd (admins apptd) where his Honour made directions but declined to make declarations in the absence of the interested parties.[17][17] Re Victoria Station Corporations Pty Ltd (admins apptd) [120]. The plaintiffs say that the question as to whether the priorities regime prescribed in s 561 of the Act applies to partnership assets where one or more of the partners is a corporation is not settled. They emphasised that each of the previous decisions predate the recent High Court decisions of Carter Holt Woodproducts Australia Pty Ltd v The Commonwealth[18] and Commissioner of State Revenue v Rojoda Pty Ltd[19] which, in the plaintiffs' submission, address analogous matters.[18] Carter Holt Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20; (2019) 268 CLR 524.[19] Commissioner of State Revenue v Rojoda Pty Ltd [2020] HCA 7; (2020) 268 CLR 281. Counsel for the plaintiffs contended that the nature of a partner's interest in partnership assets is strongly analogous to that of a trustee in trust property in that the partners have a right of indemnity to satisfy debts of the partnership and have a proprietary right in these assets to have these assets applied against these debts. On this basis, the plaintiffs submitted the assets of the Partnership was property available to the creditors of each Company. The defendants filed two sets of written submissions in relation to the application.[20] Initially, the defendants sought a direction in relation to the validity of the Westpac security, given the issues identified by the plaintiffs as part of the application. Ultimately, the defendants did not pursue this application. The defendants contend that s 556 of the Act does not apply to the winding up and that the court should make orders to this effect.[20] Defendants' submissions filed 15 September 2020 and 6 October 2020. FEG did not file submissions on the application nor seek to be heard in relation to the application. Prior to the hearing, they wrote to the solicitors for the plaintiffs in respect of the application, which correspondence was in evidence before me.[21] FEG's position is that the employees of corporations who carry on business as a partnership should be afforded the protections and priorities in the Act. On this basis, they submitted that the decision in Anmi Pty Ltd v Williams should be preferred to the decisions of Woods & White v Hopkins and Re O'Keeffe Heneghan Pty Ltd (in liq).[21] Affidavit of Christopher Kingsley Pearce filed 30 September 2020 'CKP1'.